The U.S. economy continued to expand at a slow pace in the first quarter of 2024; however, firms became more pessimistic because of reduced consumer demand and increased inflation, according to the Federal Reserve’s Beige Book report released on May 29.
The Beige Book, which is published eight times a year, provides a summary of economic conditions across the Federal Reserve districts, highlighting their varied conditions across industries and regions.
“Overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks,” the Beige Book reported.
U.S. economic activity slightly increased from early April to mid-May, with travel and tourism showing significant growth nationwide. This growth was primarily driven by increased leisure and business travel. However, hospitality contacts expressed mixed expectations for the summer season. Demand for nonfinancial services increased, and transportation services activity varied.
“We’re slowing down as an economy,” Steve Beaman, CEO of Alevar Technologies, told The Epoch Times. “Businesses are very pessimistic about it or growing pessimistic because of the inflation numbers, the political climate that we’re in, the geopolitical situation that we have, and then ... just the regulatory state. All those things are coming together to make [businesses], especially ... the independent businesses, concerned about putting capital behind a growth strategy.”
Mr. Beaman is a former economic consultant for Fortune 500 and the author of “The American Dream Under Fire” and “The Path to Prosperity.” He has 40 years of entrepreneurial business and finance experience. He began as a retail stockbroker and moved to the institutional side. He was an early adopter of technology in finance and co-founded one of the early FinTech companies.
“I deal a lot with independent businesses, and I hear and I feel the pessimism,” he said. “I think they’re looking at California specifically as a poster child for bad policy, and they’re looking at the impact of those policies in Illinois, New Jersey, and some of the other states. So, there is this pessimistic view of business looking toward that election that brings great uncertainty.”
The labor market remained stable, with eight districts reporting slight job gains, while the remaining four districts reported no changes. Although labor demand and supply continued to balance, some shortages persisted in specific industries or areas.
Wage growth was moderate, with some easing of wage pressures in certain areas. A couple of districts anticipated a continuation of modest job gains, while others noted reduced hiring expectations due to weaker business demand and uncertainty.
Manufacturing activity was generally flat to slightly up; the sector faced challenges due to high interest rates and increased input costs.
Consumer spending saw a minor increase, driven by individuals with discretionary income as lower-income individuals reduced spending or opted for lower-priced goods.
The report also indicated that prices increased at a modest pace over the reporting period. Contacts in most districts noted that consumers resisted further price increases, leading to smaller profit margins as input prices rose.
In terms of employment, the labor market remained stable with eight districts reporting negligible to modest job gains. The remaining four districts reported no changes in employment. While labor demand and supply continued to balance out, some shortages remained in select industries or areas.
“Employment rose at a slight pace overall. Eight districts reported negligible to modest job gains, and the remaining four districts reported no changes in employment,” the Federal Reserve Beige Book report stated.
Overall, while some sectors showed signs of growth, others faced challenges due to high interest rates and increased input costs. The Federal Reserve says that it will continue to monitor these conditions closely to inform its monetary policy decisions.
Mr. Beaman also issued a reminder that we should look at the data with a speculative eye.
“Yes, it reports numbers that aren’t good. But whenever we start to extrapolate those numbers into the future, let’s remember that every time you do that, you’re wrong as much as you are right. Predicting the future is not a science,” he said.
According to the Chicago Mercantile Exchange (CME) FedWatch Tool, a 0.25 percentage-point rate cut is expected at the policy-making meeting of the Federal Open Market Committee (FOMC) in November, lowering the current rate to a range of 5 to 5.25 percent from 5.25 to 5.5 percent. A second 25 basis-point cut is anticipated at the FOMC meeting on Jan. 29, 2025.
The CME FedWatch Tool is a resource from the CME Group that offers real-time insights into market expectations for future Federal Reserve monetary policy decisions, using federal funds futures contracts to project the probability of interest rate changes.
“There are strong indications that the economy is slowing down, but also that inflationary pressures remain,” E.J. Antoni, a research fellow at The Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told The Epoch Times. “This creates significant headwinds but also presents a no-win scenario for policymakers in the short term.”
Mr. Antoni says that it would be prudent to prepare for a period of both elevated inflation and stagnant economic growth, or “stagflation.”
“The downside risks and uncertainties, which the Beige Book is identifying, are the bitter fruits from the tree of profligate government spending,” he said. “As federal finance crowds out the private economy and the hidden inflation tax is used to pay for it all, consumers and businesses alike will increasingly fall on hard times.”
